Wednesday, 14 January 2009

What about wealth?

The government's New Opportunities White Paper is good news for those interested in creating a fairer society. There is, however, one issue which the White Paper inexplicably neglects even though it is surely central to the achievement of its goals: wealth inequality.

To be clear, I am not talking about income inequality, but inequality in wealth - the stocks of assets held by individuals and households. The basic facts about wealth inequality are as follows. First, wealth inequality is very high (higher than income inequality): as of 2003, the wealthiest 1% owned 21% of marketable wealth, the least wealthy 50% owned 7% of marketable wealth. Second, there is considerable asset poverty: absolute lack of financial assets. As of 2005/6, 35% of UK families had no savings, another 21% had less than £1,500 in savings (Social Trends 38, 2008, Table 5.21, p.76). Third, over the past couple of decades, wealth inequality has been rising. If we look at the Gini coefficient measure of inequality, averaging for 5 year periods since 1982, we get the following pciture:

Why does wealth inequality matter? In terms of the rhetoric of the White Paper, it is important not only that people develop their talents. It also matters how much opportunity they have to release the talent they have developed. Wealth affects both the development and the opportunity to release talent. Wealth - or parental wealth - can help one access educational opportunities that might otherwise not be available. It can help one set up a business: there is evidence that the likelihood of being an entrepreneur is affected by whether or not one receives an inheritance - and we also know that inheritance is correlated with social class (to them that already hath, more tends to be given). So it seems important, if you care about equality of opportunity, to do something serious about wealth inequality.

The White Paper is not entirely silent on this issue. In particular, there is a section in the part of the White Paper on strengthening families on 'encouraging asset ownership'. This refers us to government initiatives such as the Child Trust Fund and the Saving Gateway (soon to be rolled out nationally).

Welcome as these initiatives are - and it is worth bearing in mind that not all parties support these initiatives, the Liberal Democrats persisting in their opposition to the Child Trust Fund - one would have to be wildly optimistic to think that they come anywhere near doing enough to address the underlying problem. Moreover, while the White Paper bristles with new proposals in education and other spheres, I cannot see any major new initiative in the White Paper addressed to the problem of wealth inequality. The Child Trust Fund has been in effect since 2004, and the national roll-out of the Saving Gateway was announced last year.

Particularly conspicuous by its absence, so far as I can see, is any mention of the taxation of wealth - of wealth itself, of capital gains, or of inheritances - despite the obvious relevance of such measures to the achievement of equality of opportunity. Couldn't the White Paper at least have suggested something like a new Royal Commission on the Distribution of Wealth to examine ways of tackling the problem?

So before we celebrate this White Paper as a rediscovery of Labour's radicalism on equality of opportunity - and I'd agree that up to a point, it is - let's be clear about its limitations. The White Paper's focus on education and human capital is obviously sensible. But to focus on this aspect of opportunity to the neglect of necessary, complementary radicalism on the distribution of wealth is a serious impediment to the goals of the White Paper.

I am unable to be at the Fabian Society conference on inequality this weekend, but I hope some attendees will raise this point.

3 comments:

Anonymous
said...

Labour commentators are quick to denounce the Lib Dems' plan to scrap the child trust fund, but shy about mentioning that the money is to be ploughed into early years education.

I strongly support asset-based welfare, but don't question for a minute that that is a correct sense of priorities. If the Child Trust Fund were larger it might be a different matter. As it stands it is no more than a gimmick.

James, I'll think you'll find that it used to be Lib Dem policy to use the funds from scrapping the CTF to increase spending on early years education, but that this is no longer the case (the funds aren't targeted specifically for early years initiatives any more - or so I am told by Lib Dems).

But more fundamentally, it is quite arbitrary to treat the policy choice as 'CTF vs. early years initiatives'. The UK government spends vast amounts on subsidizing asset accumulation (e.g., via tax relief) and vast amounts on subsidizing the accumulation of human capital. The problem in both cases is that the funds are not distributed in the best way to promote social justice.

If we used some of the resources that go to fund asset accumulation amongst the better off to fund the CTF, and diverted resources from HE to early years initiatives, we could have a decent CTF and really good early years intervention programs.

Thought this was a particularly important argument, among your series of excellent posts on opportunity and class. I am sure it is a point Fabian members will make - the need to talk about wealth as well as income, as well as other areas of inequality, comes up a lot in discussion of equality and life chances. And there may now be a few more people armed with the gini coefficient statistics too.

(As it should, I think it comes up from our platforms as well as the floor, your pamphlet being one good example).